In recent months, Bahrain has witnessed a significant development in its corporate governance landscape. Resolution No. 91 of 2022 brought forth an amendment to the existing Corporate Governance Code, which is now known as ‘The Management and Corporate Governance Code.’
As the legal community in Bahrain and beyond adapts to the new regulatory changes, Amina Al Wazzan, a Paralegal in the International Corporate team in Trowers & Hamlins Bahrain office, provides valuable insights that can help stakeholders navigate the evolving landscape of corporate governance in the region.
1. What is the Purpose of the New Law?
The amended Management and Corporate Governance Code, introduced on September 19, 2022, is designed to supplement Bahrain’s Commercial Companies Law. Its core objectives include enhancing the understanding of regulatory requirements, promoting compliance, monitoring corporate performance, and ensuring fair disclosure. The key aim is to provide clearer guidelines for companies to navigate the intricacies of corporate governance.
2. Are There Long-Term Impacts or Implications to Consider?
Certainly. The new Code introduces penalties for Code violations, particularly in accordance with Principle 7 of paragraph 5, section 7. These penalties apply to both public and closed joint companies, with the exception of WLL companies. The penalties include the suspension of commercial registration for a period not exceeding six months, striking the company off the Register, imposing daily fines (up to BHD 1,000) to cease violations, or administrative fines (up to 100,000 BD). These measures necessitate prompt attention and compliance to avoid penalties.
3. Are There Any Particularly Beneficial or Innovative Provisions?
The amendment introduces a valuable provision regarding board diversification. According to Chapter 2, section 1, paragraph (a), public joint stock companies are now obligated to consider gender diversity on their boards. Additionally, companies must disclose gender statistics in their annual corporate governance reports. This is a commendable step towards promoting diversity and inclusion within the corporate sphere.
4. How Does This New Law Impact Businesses?
The updated Code significantly influences business operations. One notable impact is the extended record-keeping requirement, as stated in Paragraph 9 of section 2, Chapter 1. This mandates companies to retain records, minutes, documents, and reports for a minimum of 10 years, including those related to ongoing litigation or investigations. Another critical aspect affected by the amendment is conflict of interest. The Code prohibits individuals with conflicts of interest from attending meetings, participating, or voting on relevant matters. Failure to disclose such conflicts may result in court challenges or compensation claims.
Furthermore, companies now have the option to use electronic voting systems for shareholder participation, in alignment with the Commercial Companies Law (CCL). Auditors are now mandated to confirm the Company’s compliance with governance regulations in their reports. Private joint stock companies can renew external auditors for a maximum of five consecutive years. Disclosures related to competitive businesses, director remuneration, fees, and privileges are now essential components of the corporate governance report, enhancing transparency.
In summary, Bahrain’s updated Corporate Governance Code demonstrates the government’s commitment to fostering a more robust and responsible business environment. The amendments contribute to the efficiency of company operations, emphasize transparency and diversity, and set the stage for more modern corporate governance practices.